Alere Inc. Announces Second Quarter 2012 Results

WALTHAM, Mass., Aug. 8, 2012 /PRNewswire/ -- Alere Inc. (NYSE: ALR), a global leader in enabling individuals to take charge of their health at home through the merger of rapid diagnostics and health management, today announced its financial results for the quarter ended June 30, 2012.

Financial results for the second quarter of 2012:

  • Adjusted net revenue of $701.6 million for the second quarter of 2012, compared to $567.2 million for the second quarter of 2011.
  • Adjusted cash-basis net income per diluted common share of $0.48 for the second quarter of 2012, compared to adjusted cash-basis net income per diluted common share of $0.46 for the second quarter of 2011.
  • Adjusted cash-basis net income for the second quarter of 2012 is net of an after tax charge of $0.08 per share related to the costs and reduced revenues associated with the previously disclosed FDA matters related to our Alere Triage® meter-based products.
  • Adjusted product and services revenues from our Professional Diagnostics segment were $538.0 million in the second quarter of 2012, compared to adjusted net product and services revenue of $404.2 million in the second quarter of 2011.  Recent professional diagnostics acquisitions contributed $135.4 million of incremental net revenue compared to the second quarter of 2011.
  • North American influenza sales increased to $4.2 million for the second quarter of 2012, from $2.3 million for the second quarter of 2011.
  • Excluding the impact of the change in North American influenza revenues and the impact on revenues of the FDA matters associated with our U.S. Alere Triage products, currency adjusted organic growth in our Professional Diagnostics segment was 6.3%.
  • Adjusted cash-basis gross margins were 53.4% for the second quarter of 2012, compared to 54.9% in the second quarter of 2011 and 55.9% in the first quarter of 2012.  Adjusted cash-basis gross margins from products and services in our Professional Diagnostics segment were 56.3% in the second quarter of 2012, compared to 58.6% in the second quarter of 2011 and 60.3% in the first quarter of 2012.  Compared to the first quarter of 2012, professional diagnostics segment gross margins were reduced by 205 basis points related to the inclusion of $40.7 million of revenues from eScreen, Inc. at an adjusted gross margin of 31.3% and by a 79 basis point impact related to the incremental costs and lost revenues associated with the FDA matters relating to our Triage products.
  • Product and services revenues from our Health Management segment were $138.6 million in the second quarter of 2012, compared to $135.6 million in the second quarter of 2011 and $130.8 million in the first quarter of 2012.  The increase in revenues from the second quarter of 2011 was related primarily to increased revenues from our tobacco cessation and home coagulation monitoring programs.   Adjusted cash-basis gross margins from our Health Management segment were 46.5% in the second quarter of 2012, compared to 48.4% in the second quarter of 2011 and 45.4% in the first quarter of 2012.
  • GAAP net loss of $18.2 million attributable to common stockholders of Alere Inc., and respective net loss per common share of $0.23, for the second quarter of 2012, compared to GAAP net loss of $4.7 million attributable to common stockholders of Alere Inc., and respective net loss per common share of $0.05, for the second quarter of 2011.  
  • Adjusted free cash flow for the second quarter of 2012 was $46.2 million, reflecting cash flow from operations of $64.3 million and $21.0 million in proceeds from the sale of vacant land and an idle facility, offset by capital expenditures of $39.1 million.

The Company's GAAP results for the second quarter of 2012 exclude $1.1 million of revenue associated with acquired software license contracts that are not recognized due to business combination accounting rules and include amortization of $81.7 million, $1.4 million of restructuring charges, $4.4 million of stock-based compensation expense, $3.8 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, and $1.3 million of interest expense associated with fees paid for modification of certain debt agreements, offset by $6.7 million of income recorded for fair value adjustments to acquisition-related contingent consideration obligations.  The Company's GAAP results for the second quarter of 2011 include amortization of $81.2 million, $10.5 million of restructuring charges, $6.2 million of stock-based compensation expense, $1.4 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, $29.9 million of interest expense associated with fees paid for modification of certain debt agreements and the termination of our senior secured credit facility and a related interest rate swap agreement, offset by $7.2 million of income recorded for fair value adjustments to acquisition-related contingent consideration obligations.  These amounts, net of tax, have been excluded from the adjusted cash-basis net income per diluted common share attributable to Alere Inc. for the respective quarters.

A detailed reconciliation of the Company's adjusted cash-basis net income, which is a non-GAAP financial measure, to net loss under GAAP, as well as a discussion regarding this non-GAAP financial measure, is included in the schedules to this press release.

The Company will host a conference call beginning at 8:30 a.m. (Eastern Time) today, August 8, 2012, to discuss these results, as well as other corporate matters.  During the conference call, the Company may answer questions concerning business and financial developments and trends and other business and financial matters.  The Company's responses to these questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.

The conference call may be accessed by dialing (800) 860-2442 (domestic) or (412) 858-4600 (international) and asking for Alere Inc.  A webcast of the call can also be accessed via the Alere website at www.alere.com/investors, or directly through the following link: http://www.videonewswire.com/event.

A replay of the call will be available approximately four hours after the conclusion of the call and will remain available for a period of seven days following the call.  The replay may be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and entering replay code 10017017.  The replay will also be available via online webcast at http://www.videonewswire.com/event or via the Alere website at www.alere.com/investors for a period of 60 days following the call.

Additionally, reconciliations to non-GAAP financial measures not included in this press release that may be discussed during the call will also be available at the Alere website (http://www.alere.com/investors) under the Earnings Calls and Releases section shortly before the conference call begins and will continue to be available on this website.

For more information about Alere, please visit our website at http://www.alere.com.

By developing new capabilities in near-patient diagnosis, monitoring and health management, Alere enables individuals to take charge of improving their health and quality of life at home.  Alere's global leading products and services, as well as its new product development efforts, focus on cardiology, infectious disease, toxicology, diabetes, oncology and women's health.  Alere is headquartered in Waltham, Massachusetts.

Alere Inc. and Subsidiaries



Selected Consolidated Revenues by Business Area (1)



(in thousands)

















Professional Diagnostics Segment










% Change


% Change



Q2 2012


YTD 2012



Q2 2011


YTD 2011


Q2 12 v. Q2 11


YTD 12 v. YTD 11

Cardiology

$125,597


$   264,423



$132,854


$262,709


-5%


1%

Infectious disease

137,821


288,837



122,494


262,920


13%


10%

Toxicology

159,922


281,662



88,833


174,337


80%


62%

Diabetes

36,797


64,958



-


-





Other (1)

76,736


152,442



60,034


114,034


28%


34%


Professional diagnostics net product sales and services revenue (1)

536,873


1,052,322



404,215


814,000


33%


29%

License and royalty revenue

3,237


6,145



4,859


10,886


-33%


-44%


Professional diagnostics net revenue

$540,110


$1,058,467



$409,074


$824,886


32%


28%





























Health Management Segment










% Change


% Change



Q2 2012


YTD 2012



Q2 2011


YTD 2011


Q2 12 v. Q2 11


YTD 12 v. YTD 11

Disease and case management

$  54,512


$   107,894



$  61,222


$122,677


-11%


-12%

Wellness

29,567


56,591



26,137


55,942


13%


1%

Women's & children's health

31,313


61,084



28,466


57,041


10%


7%

Patient self-testing services

23,198


43,805



19,747


42,975


17%


2%


Health management net revenue

$138,590


$   269,374



$135,572


$278,635


2%


-3%















(1)Revenues are presented in accordance with Generally Accepted Accounting Principles and exclude an adjustment of $1,126 and $2,412 in revenue related to acquired software license contracts which were not recognized during the three and six months ended June 30, 2012, respectively, due to business combination accounting rules.



Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in $000s)






June 30,


December 31,


2012


2011

ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$      303,739


$       299,173

Restricted cash

3,099


8,987

Marketable securities

863


1,086

Accounts receivable, net

501,076


475,824

Inventories, net

316,897


320,269

Prepaid expenses and other current assets

169,083


188,388

Total current assets

1,294,757


1,293,727





PROPERTY, PLANT AND EQUIPMENT, NET

500,798


491,205

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4,911,442


4,676,742

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

220,458


211,027

Total assets

$   6,927,455


$    6,672,701





LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES:




Short-term debt and current portion of long-term debt

$        60,172


$         73,415

Other current liabilities

559,320


551,037

Total current liabilities

619,492


624,452





LONG-TERM LIABILITIES:




Long-term debt, net of current portion

3,499,279


3,280,080

Deferred tax liability

436,247


380,700

Other long-term liabilities

181,409


153,398

Total long-term liabilities

4,116,935


3,814,178





Redeemable non-controlling interest

-


2,497





TOTAL EQUITY

2,191,028


2,231,574

Total liabilities and equity

$   6,927,455


$    6,672,701



Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)






















Three Months Ended June 30, 2012









 Non-GAAP 









 Adjusted 







 Non-GAAP 


 Cash 





GAAP


 Adjustments 


 Basis (a) 











Net product sales and services revenue


$        697,280


$                  1,126

 (b) 

$            698,406


License and royalty revenue


3,237




3,237



Net revenue


700,517


1,126


701,643


Cost of net revenue


344,909


(17,748)

 (c) (e) 

327,161



      Gross profit


355,608


18,874


374,482



      Gross margin


51%




53%











Operating expenses:









Research and development


40,447


(2,372)

 (c) (e) 

38,075



Selling, general and administrative


280,807


(64,103)

 (c) (d) (e) (f) (g) 

216,704



   Total operating expenses


321,254


(66,475)


254,779



      Operating income


34,354


85,349


119,703


Interest and other income (expense), net


(51,720)


1,370

 (d) (h) 

(50,350)



 Income (loss) before provision (benefit) for income taxes 


(17,366)


86,719


69,353


Provision (benefit) for income taxes


(489)


29,322

 (j) 

28,833



 Income (loss) before equity earnings of unconsolidated entities, net of tax 


(16,877)


57,397


40,520


Equity earnings of unconsolidated entities, net of tax


3,998


298

 (c) 

4,296


Net income (loss)


(12,879)


57,695


44,816



Less: Net income attributable to non-controlling interests, net of tax


36


21

 (i) 

57


Net income (loss) attributable to Alere Inc. and Subsidiaries


$        (12,915)


$                57,674


$              44,759












Preferred stock dividends


$          (5,279)


$                        -


$              (5,279)



Preferred stock repurchase


$                   -


$                        -


$                       -











Net income (loss) available to common stockholders


$        (18,194)




$              39,480












Basic net income (loss) per common share


$            (0.23)




$                  0.49



Diluted net income (loss) per common share


$            (0.23)

 (k) 



$                  0.48

 (l) 










Weighted average common shares - basic


80,375




80,375


Weighted average common shares - diluted


80,375

 (k) 



83,960

 (l) 




























Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)






















Three Months Ended June 30, 2011









 Non-GAAP 









 Adjusted 







 Non-GAAP 


 Cash 





GAAP


 Adjustments 


 Basis (a) 











Net product sales and services revenue


$        562,380


$                        -


$            562,380


License and royalty revenue


4,805


-


4,805



Net revenue


567,185


-


567,185


Cost of net revenue


274,457


(18,541)

 (c) (d) (e) 

255,916



      Gross profit


292,728


18,541


311,269



      Gross margin


52%




55%











Operating expenses:









Research and development


41,348


(9,016)

 (c) (d) (e) 

32,332



Selling, general and administrative


235,226


(64,093)

 (c) (d) (e) (f) (g) 

171,133



   Total operating expenses


276,574


(73,109)


203,465



      Operating income


16,154


91,650


107,804


Interest and other income (expense), net


(68,125)


29,966

 (d) (h) 

(38,159)



 Income (loss) before provision (benefit) for income taxes 


(51,971)


121,616


69,645


Provision (benefit) for income taxes


(42,736)


65,844

 (j) 

23,108



 Income (loss) before equity earnings of unconsolidated entities, net of tax 


(9,235)


55,772


46,537


Equity earnings (losses) of unconsolidated entities, net of tax


(207)


360

 (c) (d) 

153


Net income (loss)


(9,442)


56,132


46,690



Less: Net income (loss) attributable to non-controlling interests, net of tax


(40)


26

 (i) 

(14)


Net income (loss) attributable to Alere Inc. and Subsidiaries


$          (9,402)


$                56,106


$              46,704












Preferred stock dividends


$          (5,515)


$                          -


$              (5,515)



Preferred stock repurchase


$          10,248


$               (10,248)

 (n) 

$                       -











Net income (loss) available to common stockholders


$          (4,669)




$              41,189












Basic net income (loss) per common share


$            (0.05)




$                  0.48



Diluted net income (loss) per common share


$            (0.05)

 (k) 



$                  0.46

 (m) 










Weighted average common shares - basic


85,703




85,703


Weighted average common shares - diluted


85,703

 (k) 



90,754

 (m) 

 

(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or loss (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Approximately $1.1 million in estimated revenue related to acquired software license contracts will not be recognized for the second quarter of 2012 due to business combination accounting rules.

(c) Amortization expense of $81.7 million and $81.2 million in the second quarter of 2012 and 2011 GAAP results, respectively, including $17.5 million and $17.3 million charged to cost of sales, $1.5 million and $7.4 million charged to research and development, $62.4 million and $56.3 million charged to selling, general and administrative, with $0.3 million and $0.2 million charged through equity earnings of unconsolidated entities, net of tax during each of the respective quarters.

(d) Restructuring charges associated with the decision to close facilities of $1.4 million and $10.5 million for the second quarter of 2012 and 2011 GAAP results, respectively. The $1.4 million charge for the second quarter of 2012 included $1.3 million charged to selling, general and administrative expense and $0.1 million charged to interest and other income (expense), net. The $10.5 million charge for the second quarter of 2011 included $0.8 million charged to cost of sales, $0.4 million charged to research and development, $9.1 million charged to selling, general and administrative expense, $0.1 million charged to interest expense and $0.1 million charged through equity earnings of unconsolidated entities, net of tax. 

(e) Compensation costs of $4.4 million and $6.2 million associated with stock-based compensation expense for the second quarter of 2012 and 2011 GAAP results, respectively, including $0.3 million and $0.4 million charged to cost of sales, $0.9 million and $1.2 million charged to research and development and $3.2 million and $4.6 million charged to selling, general and administrative, in the respective quarters.

(f) Acquisition-related costs in the amount of $3.8 million and $1.4 million in the second quarter of 2012 and 2011 GAAP results, respectively, recorded in connection with ASC 805, Business Combinations.

(g) $6.7 million of income and $7.2 million of income in the second quarter of 2012 and 2011 GAAP results, respectively, recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(h) Interest expense of $1.3 million and $29.9 million in the second quarter of 2012 and 2011 GAAP results, respectively, recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility.

(i) Amortization expense of $28.0 thousand ($21.0 thousand, net of tax) and $34.0 thousand ($26.0 thousand, net of tax) in the second quarter of 2012 and 2011 GAAP results, respectively.

(j) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f), (g) and (h).

(k) For the three months ended June 30, 2012 and 2011, potential dilutive shares were not used in the calculation of diluted net loss per common share under GAAP because inclusion thereof would be antidilutive.

(l) Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended June 30, 2012, on an adjusted cash basis, were dilutive shares consisting of 147,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities. Potential dilutive shares consisting of 10,239,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share, on an adjusted cash basis, for the three months ended June 30, 2012, because inclusion thereof would be antidilutive. The diluted net income per common share calculation for the three months ended June 30, 2012, on an adjusted cash basis, included and the add back of interest expense related to the convertible debt of $0.7 million resulting in net income available to common stockholders of $40.2 million for the three months ended June 30, 2012.

(m) Included in the weighted average diluted common shares for the calculation of net income per common share for the three months ended June 30, 2011, on an adjusted cash basis, were dilutive shares consisting of 1,385,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 112,000 potentially issuable shares of common stock associated with contingent consideration arrangements, 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities and 116,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. Potential dilutive shares consisting of 10,637,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share, on an adjusted cash basis, for the three months ended June 30, 2011, because inclusion thereof would be antidilutive. The diluted net income per common share calculation for the three months ended June 30, 2011, on an adjusted cash basis, included the add back of interest expense related to the convertible debt of $0.7 million and the add back of interest expense related to the ACON Second Territory Business of $24.0 thousand resulting in net income available to common stockholders of $41.9 million for the three months ended June 30, 2011.

(n)  Non-cash income allocated to net income available to common stockholders as a result of repurchases of preferred shares during the second quarter of 2011.

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)



















Six Months Ended June 30, 2012








 Non-GAAP 








 Adjusted 






 Non-GAAP 


 Cash 




GAAP


 Adjustments 


 Basis (a) 










Net product sales and services revenue

$     1,365,501


$                  2,412

(b) 

$         1,367,913


License and royalty revenue

6,145


-


6,145



Net revenue

1,371,646


2,412


1,374,058


Cost of net revenue

662,967


(39,399)

(c) (d) (e) (j) 

623,568



      Gross profit

708,679


41,811


750,490



      Gross margin

52%




55%










Operating expenses:








Research and development

79,447


(6,169)

(c) (d) (e) 

73,278



Selling, general and administrative

559,820


(137,172)

(c) (d) (e) (f) (g) 

422,648



   Total operating expenses

639,267


(143,341)


495,926



      Operating income

69,412


185,152


254,564


Interest and other income (expense), net

(90,616)


2,750

(d)
(h) 

(87,866)



 Income (loss) before provision (benefit) for income taxes 

(21,204)


187,902


166,698


Provision (benefit) for income taxes

(1,944)


60,105

 (l) 

58,161



 Income (loss) before equity earnings of unconsolidated entities, net of tax 

(19,260)


127,797


108,537


Equity earnings of unconsolidated entities, net of tax

7,410


516

 (c) 

7,926


Net income (loss)

(11,850)


128,313


116,463



Less: Net income (loss) attributable to non-controlling interests, net of tax

(149)


42

 (k) 

(107)


Net income (loss) attributable to Alere Inc. and Subsidiaries

$        (11,701)


$              128,271


$            116,570











Preferred stock dividends

$        (10,588)


$                          -


$            (10,588)



Preferred stock repurchase

$                   -


$                          -


$                       -










Net income (loss) available to common stockholders

$        (22,289)




$            105,982











Basic net income (loss) per common share

$            (0.28)




$                  1.32



Diluted net income (loss) per common share

$            (0.28)

 (m) 



$                  1.25

 (o) 









Weighted average common shares - basic

80,307




80,307


Weighted average common shares - diluted

80,307

 (m) 



94,189

 (o) 

























Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and

Reconciliation to Non-GAAP Adjusted Cash Basis Amounts

(in $000s, except per share amounts)



















Six Months Ended June 30, 2011








 Non-GAAP 








 Adjusted 






 Non-GAAP 


 Cash 




GAAP


 Adjustments 


 Basis (a) 










Net product sales and services revenue

$     1,137,175


$                        -


$         1,137,175


License and royalty revenue

12,474


-


12,474



Net revenue

1,149,649


-


1,149,649


Cost of net revenue

550,714


(37,195)

(c) (d) (e) 

513,519



      Gross profit

598,935


37,195


636,130



      Gross margin

52%




55%










Operating expenses:








Research and development

77,890


(12,267)

(c) (d) (e) 

65,623



Selling, general and administrative

473,986


(133,573)

(c) (d) (e) (f) (g) 

340,413



   Total operating expenses

551,876


(145,840)


406,036



      Operating income

47,059


183,035


230,094


Interest and other income (expense), net

(104,094)


31,935

(d) (h) (i) 

(72,159)



 Income (loss) before provision (benefit) for income taxes 

(57,035)


214,970


157,935


Provision (benefit) for income taxes

(47,066)


98,440

 (l) 

51,374



 Income (loss) before equity earnings of unconsolidated entities, net of tax 

(9,969)


116,530


106,561


Equity earnings of unconsolidated entities, net of tax

804


770

(c) (d) 

1,574


Net income (loss)

(9,165)


117,300


108,135



Less: Net income attributable to non-controlling interests, net of tax

22


33

 (k) 

55


Net income (loss) attributable to Alere Inc. and Subsidiaries

$          (9,187)


$              117,267


$            108,080











Preferred stock dividends

$        (11,324)


$                          -


$            (11,324)



Preferred stock repurchase

$          23,936


$               (23,936)

 (q) 

$                       -










Net income available to common stockholders

$            3,425




$              96,756











Basic net income (loss) per common share

$              0.04




$                  1.13



Diluted net income (loss) per common share

$              0.04

 (n) 



$                  1.08

 (p) 









Weighted average common shares - basic

85,536




85,536


Weighted average common shares - diluted

87,032

 (n) 



101,566

 (p) 

















(a) In calculating net income or loss on an adjusted cash basis, the Company excludes from net income or loss (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business.  In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant.  Management believes that excluding such charges and income from net income or loss allows investors and management to evaluate and compare the Company's operating results from continuing operations from period to period in a meaningful and consistent manner.  Due to the frequency of their occurrence in its business, the Company does not adjust net income or loss for the costs associated with litigation, including payments made or received through settlements.  It should be noted that "net income or loss on an adjusted cash basis" is not a standard financial measurement under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered as an alternative to net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, "net income or loss on an adjusted cash basis" presented in this press release may not be comparable to similar measures used by other companies.

(b) Approximately $2.4 million in estimated revenue related to acquired software license contracts will not be recognized in the first six months of 2012 due to business combination accounting rules.

(c) Amortization expense of $159.8 million and $157.5 million in the first six months of 2012 and 2011 GAAP results, respectively, including $33.2 million and $34.2 million charged to cost of sales, $3.9 million and $9.7 million charged to research and development, $122.2 million and $113.2 million charged to selling, general and administrative, with $0.5 million and $0.4 million charged through equity earnings of unconsolidated entities, net of tax during each of the respective periods.

(d) Restructuring charges associated with the decision to close facilities of $7.0 million and $16.9 million in the first six months of 2012 and 2011 GAAP results, respectively. The $7.0 million charge for the six months ended June 30, 2012 included $1.0 million charged to cost of sales, $0.6 million charged to research and development, $5.3 million charged to selling, general and administrative expense and $0.1 million charged to interest and other income (expense), net. The $16.9 million charge for the six months ended June 30, 2011 included $2.2 million charged to cost of sales, $0.4 million charged to research and development, $13.9 million charged to selling, general and administrative expense, $0.1 million charged to interest expense and $0.3 million charged through equity earnings of unconsolidated entities, net of tax.

(e) Compensation costs of $8.2 million and $12.0 million associated with stock-based compensation expense for the first six months of 2012 and 2011 GAAP results, respectively, including $0.5 million and $0.8 million charged to cost of sales, $1.6 million and $2.1 million charged to research and development and $6.1 million and $9.1 million charged to selling, general and administrative, in the respective periods.

(f) Acquisition-related costs in the amount of $5.3 million and $3.3 million in the first six months of 2012 and 2011 GAAP results, respectively, recorded in connection with ASC 805, Business Combinations.

(g) $1.6 million of income and $5.8 million of expense in the first six months of 2012 and 2011 GAAP results, respectively, recorded in connection with fair value adjustments to acquisition-related contingent consideration obligations in accordance with ASC 805, Business Combinations.

(h) Interest expense of $2.6 million and $29.9 million in the first six months of 2012 and 2011, respectively, recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility.

(i) A $1.9 million realized foreign currency loss associated with the settlement of an acquisition-related contingent consideration obligation.

(j) A write-off in the amount of $4.7 million during the first six months of 2012, relating to inventory write-ups recorded in connection with an acquisition.

(k) Amortization expense of $55.0 thousand ($42.0 thousand, net of tax) and $43.0 thousand ($33.0 thousand, net of tax) in the first six months of 2012 and 2011 GAAP results, respectively.

(l) Tax effect on adjustments as discussed above in notes (b), (c), (d), (e), (f), (g), (h), (i) and (j).

(m) For the six months ended June 30, 2012, potential dilutive shares were not used in the calculation of diluted net loss per common share under GAAP because inclusion thereof would be antidilutive.

(n) Included in the weighted average diluted common shares for the calculation of net income per common share on a GAAP basis for the six months ended June 30, 2011, are dilutive shares consisting of 1,384,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 112,000 potentially issuable shares of common stock associated with contingent consideration arrangements. Potential dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities, 116,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business and 10,981,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock were not included in the calculation of net income per common share on a GAAP basis for the six months ended June 30, 2011, because inclusion thereof would be antidilutive.

(o) Included in the weighted average diluted common shares for the calculation of net income per common share for the six months ended June 30, 2012, on an adjusted cash basis, were dilutive shares consisting of 204,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities and 10,239,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock. The diluted net income per common share calculation for the six months ended June 30, 2012, on an adjusted cash basis, included the add back of interest expense related to the convertible debt of $1.4 million and the add back of $10.6 million of preferred stock dividends related to the Series B convertible preferred resulting in net income available to common stockholders of $118.0 million for the six months ended June 30, 2012.

(p) Included in the weighted average diluted common shares for the calculation of net income per common share for the six months ended June 30, 2011, on an adjusted cash basis, were dilutive shares consisting of 1,384,000 common stock equivalent shares from the potential exercise of stock options and warrants. Also included were dilutive shares consisting of 112,000 potentially issuable shares of common stock associated with contingent consideration arrangements. Also included were dilutive shares consisting of 3,438,000 common stock equivalent shares from the potential conversion of convertible debt securities, 10,981,000 common stock equivalent shares from the potential conversion of Series B convertible preferred stock and 116,000 common stock equivalents from the potential settlement of a portion of the deferred purchase price consideration related to the ACON Second Territory Business. The diluted net income per common share calculation for the six months ended June 30, 2011, on an adjusted cash basis, included the add back of interest expense related to the convertible debt of $1.4 million, the add back of $11.3 million of preferred stock dividends related to the Series B convertible preferred stock and the add back of interest expense related to the ACON Second Territory Business of $48.0 thousand resulting in net income available to common stockholders of $109.5 million for the six months ended June 30, 2011.

(q)  Non-cash income allocated to net income available to common stockholders as a result of repurchases of preferred shares during the first six months of 2011.

 

SOURCE Alere Inc.



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